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New York Can Earn the Money to Pay for Better Subways
Public agencies are sitting on enormous real-estate assets—a gold mine if managed professionally.
By Dag Detter / Wall Street Journal
Aug. 31, 2018 4:30 p.m. ET
Passengers on New York City’s subways sometimes marvel at the transit system’s sprawling size or the ambitious engineering since the first line opened in 1904. Instead riders ought to be amazed that the decrepit subways still work at all—and worried that they won’t last forever.
Despite the proliferation of bike lanes, ride-hailing apps, and grand promises about autonomous vehicles, commuter trains and subway lines remain the most efficient way to move large numbers of people in, out and around a large city. But the investment to maintain and upgrade New York’s transit system has been lacking for years.
Thousands of subway trains a month are delayed because of “signal problems.” After a derailment last year, Gov. Andrew Cuomo declared a subway state of emergency. The two rail tunnels under the Hudson River are in poor shape, too, creating a potential bottleneck for New Jersey commuters and passengers on Amtrak’s Northeast Corridor. It would be hard to overstate the economic blow if a tunnel were forced to close.
What politicians have proposed in response doesn’t measure up. Mayor Bill de Blasio has pushed to create a “lockbox” to protect money for the Metropolitan Transportation Authority from being raided for other programs. Mr. Cuomo has advocated funding new investments in transit with property-tax surcharges on the neighborhoods that will benefit. But if riders are pinning their hopes for reform on new government subsidies or Mr. Cuomo’s idea of “value capture,” they’ll be waiting a long time in vain.
The key to solving New York’s transit crisis is much simpler: good governance. Local governments are sitting on a proverbial gold mine of public assets that could raise significant revenue if they were professionally managed. Apart from operational assets such as subways, water utilities, ports and airports, New York’s public sector owns a great deal of real estate. My research suggests that in many cities as much as a quarter of the real estate is publicly owned. If that fraction holds for New York, the value of the public portfolio could be $1 trillion.
The challenge is to create the right institutional structure to manage and develop public properties efficiently. The Port Authority of New York and New Jersey is a prime illustration of how not to do this: It answers to two governors whose agendas often conflict, but neither of whom seems motivated to get the most out of the Port Authority’s assets. Yet its holdings are extensive, including major airports, ports, bridges and tunnels, as well as a substantial portfolio of real estate. Unfortunately, these assets’ performance falls far short of the best of Asia or Europe.
A good model is Hong Kong’s Mass Transit Railway. With a similar passenger volume as in New York City, the MTR has been able to build and maintain its subway and rail system without government money. It also charges low fares and runs 99% on schedule, which should leave New Yorkers swooning.
The secret is that the MTR doesn’t mix policy and commercial objectives or leave money on the table. Under a model called “rail plus property,” the MTR doesn’t sell the real estate above its stations before it is developed, as New York did with Hudson Yards. Rather, the MTR develops the real estate itself. It thus retains the profits from each individual project, and uses them to fund its metro system. The cities of Hamburg, Copenhagen and Lyon, France, have used similar funding strategies to build universities, schools, subway lines and public housing.
For New York City, the task is to empower a professional management team to develop public assets, while maintaining government ownership through an accountable, independent institution at arm’s length from short-term political influence. This kind of “urban wealth fund,” properly set up with a transparent balance sheet, would speak the language of the private sector and could ultimately achieve the same level of performance.
If the MTA, Port Authority and City of New York could manage their real-estate portfolios professionally, they could unlock hidden value that could be poured into much needed investments in the subway and rail systems. Since the Port Authority controls all three of the metropolitan area’s main airports, LaGuardia, JFK and Newark Liberty International, residents could even stand to gain a functional air-travel system.
After more than 100 years of operation, New York’s subway system more than deserves an overhaul. But trying to fix it with new taxes would face stiff opposition. A better strategy is to help sleepy public assets reach their true market values—and then to put the returns to work for the good of everyday New Yorkers.
Mr. Detter is a former president of Stattum, the Swedish government holding company and national wealth fund, and co-author, with Stefan Fölster, of “The Public Wealth of Cities.”
Public agencies are sitting on enormous real-estate assets—a gold mine if managed professionally.
By Dag Detter / Wall Street Journal
Aug. 31, 2018 4:30 p.m. ET
Passengers on New York City’s subways sometimes marvel at the transit system’s sprawling size or the ambitious engineering since the first line opened in 1904. Instead riders ought to be amazed that the decrepit subways still work at all—and worried that they won’t last forever.
Despite the proliferation of bike lanes, ride-hailing apps, and grand promises about autonomous vehicles, commuter trains and subway lines remain the most efficient way to move large numbers of people in, out and around a large city. But the investment to maintain and upgrade New York’s transit system has been lacking for years.
Thousands of subway trains a month are delayed because of “signal problems.” After a derailment last year, Gov. Andrew Cuomo declared a subway state of emergency. The two rail tunnels under the Hudson River are in poor shape, too, creating a potential bottleneck for New Jersey commuters and passengers on Amtrak’s Northeast Corridor. It would be hard to overstate the economic blow if a tunnel were forced to close.
What politicians have proposed in response doesn’t measure up. Mayor Bill de Blasio has pushed to create a “lockbox” to protect money for the Metropolitan Transportation Authority from being raided for other programs. Mr. Cuomo has advocated funding new investments in transit with property-tax surcharges on the neighborhoods that will benefit. But if riders are pinning their hopes for reform on new government subsidies or Mr. Cuomo’s idea of “value capture,” they’ll be waiting a long time in vain.
The key to solving New York’s transit crisis is much simpler: good governance. Local governments are sitting on a proverbial gold mine of public assets that could raise significant revenue if they were professionally managed. Apart from operational assets such as subways, water utilities, ports and airports, New York’s public sector owns a great deal of real estate. My research suggests that in many cities as much as a quarter of the real estate is publicly owned. If that fraction holds for New York, the value of the public portfolio could be $1 trillion.
The challenge is to create the right institutional structure to manage and develop public properties efficiently. The Port Authority of New York and New Jersey is a prime illustration of how not to do this: It answers to two governors whose agendas often conflict, but neither of whom seems motivated to get the most out of the Port Authority’s assets. Yet its holdings are extensive, including major airports, ports, bridges and tunnels, as well as a substantial portfolio of real estate. Unfortunately, these assets’ performance falls far short of the best of Asia or Europe.
A good model is Hong Kong’s Mass Transit Railway. With a similar passenger volume as in New York City, the MTR has been able to build and maintain its subway and rail system without government money. It also charges low fares and runs 99% on schedule, which should leave New Yorkers swooning.
The secret is that the MTR doesn’t mix policy and commercial objectives or leave money on the table. Under a model called “rail plus property,” the MTR doesn’t sell the real estate above its stations before it is developed, as New York did with Hudson Yards. Rather, the MTR develops the real estate itself. It thus retains the profits from each individual project, and uses them to fund its metro system. The cities of Hamburg, Copenhagen and Lyon, France, have used similar funding strategies to build universities, schools, subway lines and public housing.
For New York City, the task is to empower a professional management team to develop public assets, while maintaining government ownership through an accountable, independent institution at arm’s length from short-term political influence. This kind of “urban wealth fund,” properly set up with a transparent balance sheet, would speak the language of the private sector and could ultimately achieve the same level of performance.
If the MTA, Port Authority and City of New York could manage their real-estate portfolios professionally, they could unlock hidden value that could be poured into much needed investments in the subway and rail systems. Since the Port Authority controls all three of the metropolitan area’s main airports, LaGuardia, JFK and Newark Liberty International, residents could even stand to gain a functional air-travel system.
After more than 100 years of operation, New York’s subway system more than deserves an overhaul. But trying to fix it with new taxes would face stiff opposition. A better strategy is to help sleepy public assets reach their true market values—and then to put the returns to work for the good of everyday New Yorkers.
Mr. Detter is a former president of Stattum, the Swedish government holding company and national wealth fund, and co-author, with Stefan Fölster, of “The Public Wealth of Cities.”
